EU finance ministers centralize crypto exchange oversight under single watchdog

European Union finance ministers have agreed to centralize oversight of the bloc’s largest crypto exchanges under a single watchdog, closing a regulatory gap that allowed firms licensed in one country to serve all 27 member states with minimal cross-border scrutiny. The shift marks the first major structural overhaul of MiCA supervision since the regulation took effect, though it will affect only a small fraction of the estimated 360 crypto service providers operating in Europe.

• Only 10 to 15 of roughly 360 crypto providers would qualify for centralized ESMA supervision under the new framework.
• Firms meeting at least 15 million active EU users or three of five additional criteria would face direct European Securities and Markets Authority oversight.
• The Council’s agreement sets negotiating terms; final rules require European Parliament approval and formal interinstitutional talks.

• 15 million Active EU users threshold for triggering centralized ESMA supervision
• €1 billion Crypto assets under custody as one significance criterion
• €4 billion Annual client transactions as another threshold measure
• Over 18 Separate pieces of EU legislation amended in the Market Integration and Supervision Package

EU finance ministers reached a political agreement on Friday (October 9) to transfer direct supervision of the bloc’s most significant crypto-asset service providers to the European Securities and Markets Authority, addressing what regulators view as a fundamental weakness in the Markets in Crypto-Assets Regulation. According to reporting by CryptoSlate, the overhaul is considerably narrower than the European Commission’s original proposal to move all crypto providers under centralized control. The agreement forms part of a broader Market Integration and Supervision Package designed to strengthen European capital markets. Tánaiste and Minister for Finance of Ireland Simon Harris stated that the deal represents “a huge achievement for the Irish Presidency” and noted the package “will boost our competitiveness, contribute to improved living standards, and ensure that the EU remains a leading destination for global investment.”

The EU’s long-term prosperity will depend on our ability to innovate, invest, and compete. Open, well-functioning and integrated European capital markets are an essential pillar of the Single Market.

Tánaiste and Minister for Finance of Ireland Simon Harris

How MiCA’s passporting system exposed regulatory gaps across Europe

MiCA’s current framework permits a crypto firm licensed in any single member state to offer approved services throughout the entire European Union without establishing physical presence elsewhere. This “passporting” arrangement was designed to reduce compliance duplication for firms expanding across borders. However, it concentrates supervisory authority in a single national regulator whose approval can affect crypto customers and market infrastructure across all 27 member states, even when other regulators would apply different scrutiny standards.

A July 2025 peer review by ESMA exposed the practical consequences of this model. The review of Malta Financial Services Authority’s authorization of an unnamed crypto provider found insufficient evidence that the licensing assessment adequately addressed governance, conflicts of interest, technology infrastructure, custody arrangements and anti-money-laundering risks. ESMA’s assessment questioned why the company received approval while material issues remained unresolved.

Malta subsequently defended its regulatory process, arguing in September 2025 that MiCA was too new to justify an additional regulatory layer and warning that centralization could introduce bureaucracy and hamper competitiveness. The authority did credit the Maltese regulator with sector expertise and sufficient supervisory resources, while recommending improvements to its authorization process rather than wholesale transfer of authority.

New significance thresholds would capture only the largest cross-border operators

Under the Council’s draft framework, ESMA would assume direct supervision of crypto providers meeting either of two principal thresholds: at least 15 million active EU users, or three of five additional significance criteria. The supplementary measures include more than 1 million active users, over €1 billion in crypto assets under custody, more than €4 billion in annual client transactions, and broader measures of financial interconnectedness to the EU banking system. Together, these factors mean a provider’s overall scale and systemic connections, rather than its country of incorporation alone, would determine whether supervision moves to ESMA.

Officials estimate that only 10 to 15 of the roughly 360 current crypto service providers would cross these thresholds and require direct ESMA oversight. The remaining majority would continue operating under national regulators, though ESMA would coordinate through guidelines, peer reviews and coordinated investigations to address uneven enforcement across jurisdictions.

ESMA would gain powers to request information from directly supervised firms, conduct inspections, investigate breaches, and impose financial penalties. The agency could also restrict services or withdraw authorization where firms do not meet regulatory requirements. The agreement establishes a full-time ESMA executive board, including a chair and five independent members, to handle operational and company-specific decisions separate from broader policy coordination involving national regulators.

Transition timeline and remaining negotiations set implementation pace

The Council’s agreement sets the institution’s negotiating position ahead of formal talks with the European Parliament, which must now establish its own stance on the proposal. The Market Integration and Supervision Package amends over 18 separate pieces of EU legislation and will require interinstitutional negotiation before either body can formally vote. Existing MiCA licenses for companies brought under direct ESMA supervision would remain valid during a proposed two-year transition period, avoiding the need for firms to seek new authorization immediately.

Key open questions include the final thresholds that will trigger centralized oversight, ESMA’s available resources and staffing for the expanded mandate, and how crypto providers near the boundary between national and centralized supervision will be treated during transition.

The BlockWest read. The narrowing from the Commission’s original proposal to supervise all crypto providers down to 10-15 firms reflects a political compromise that preserves national regulatory authority for the fragmented market majority. Institutional investors and custody providers operating at scale should monitor how ESMA defines the five supplementary significance criteria in final negotiations, as minor threshold adjustments could determine whether their counterparties face unified or multi-jurisdictional oversight.

The European Parliament must now develop its negotiating position before the two institutions can begin formal trilogue negotiations. The outcome of those talks will determine whether the thresholds shift upward (capturing fewer firms and leaving more gaps) or downward (expanding ESMA’s direct caseload), and when the two-year transition to centralized supervision begins for firms that cross the line.

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